Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 8209 

1Custody of Investment Company Assets With 

Futures Commission Merchants and Commodity 

Clearing Organizations, Investment Company Act 

Release No. 22389 (Dec. 11, 1996) (61 FR 66207 

(Dec. 17, 1996)). 

2This estimate is based on information 

conversations with representatives of the fund 

industry. 

3The rule requires a contract with the FCM to 

contain three provisions. Two of the provisions 

require the FCM to comply with existing 

requirements under the CEA and rules adopted 

under that Act. Thus, to the extent these provisions 

could be considered collections of information, the 

hours required for compliance would be included 

in the collection of information burden hours 

submitted by the Commodity Futures Trading 

Commission for its rules. The third contract 

provision requires that the FCM produce records or 

other information requested by the Commission or 

its staff. Commission staff has requested this type 

of information from an FCM so infrequently in the 

past that the annual burden hours are de minimis. 

previously approved collection of 

information discussed below. 

Rule 17f–6 (17 CFR 270.17f–6) under 

the Investment Company Act of 1940 

(15 U.S.C. 80a) permits registered 

investment companies (‘‘funds’’) to 

maintain assets (i.e., margin) with 

futures commission merchants 

(‘‘FCMs’’) in connection with 

commodity transactions effected on 

both domestic and foreign exchanges. 

Before the rule was adopted, funds 

generally were required to maintain 

such assets in special accounts with a 

custodian bank.1

The rule requires a written contract 

that contains certain provisions 

designed to ensure important safeguards 

and other benefits relating to the 

custody of fund assets by FCMs. To 

protect fund assets, the contract must 

require that FCMs comply with the 

segregation or secured amount 

requirements of the Commodity 

Exchange Act (‘‘CEA’’) and the rules 

under that statute. The contract also 

must contain a requirement that FCMs 

obtain an acknowledgment from any 

clearing organization that the fund’s 

assets are held on behalf of the FCM’s 

customers according to CEA provisions. 

Finally, FCMs are required to furnish to 

the Commission or its staff on request 

information concerning the fund’s assets 

in order to facilitate Commission 

inspections. 

The Commission estimates that 

approximately 2,275 funds effect 

commodities transactions and could 

deposit margin with FCMs under Rule 

17f-6 in connection with those 

transactions. Commission staff estimates 

that each fund uses and deposits margin 

with two different FCMs in connection 

with its commodity transactions.2

The Commission estimates that each 

of the 2,275 funds spends an average of 

1 hour annually complying with the 

contract requirements of the rule (i.e., 

executing contracts that contain the 

requisite provisions with additional 

FCMs), for a total of 2,275 burden hours. 

The estimate does not include the time 

required by an FCM to comply with the 

rule’s contract requirements because, to 

the extent that complying with the 

contract provisions could be considered 

‘‘collections of information,’’ the burden 

hours for compliance are already 

included in other PRA submissions or 

are de minimis.3 The estimate of average 

burden hours is made solely for the 

purposes of the Paperwork Reduction 

Act, and is not derived from a 

comprehensive or even a representative 

survey or study of the costs of 

Commission rules and forms. 

Compliance with the collection of 

information requirements of the rule is 

necessary to obtain the benefit of relying 

on the rule. If an FCM furnishes records 

pertaining to a fund’s assets at the 

request of the Commission or its staff, 

the records will be kept confidential to 

the extent permitted by relevant 

statutory or regulatory provisions. The 

rule does not require these records be 

retained for any specific period of time. 

An agency may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid control 

number. 

Please direct general comments 

regarding the above information to the 

following persons: (i) Desk Officer for 

the Securities and Exchange 

Commission, Office of Management and 

Budget, Room 10102, New Executive 

Office Building, Washington, DC 20503 

or e-mail to: 

David_Rostker@omb.eop.gov; and (ii) R. 

Corey Booth, Director/Chief Information 

Officer, Securities and Exchange 

Commission, C/O Shirley Martinson, 

6432 General Green Way, Alexandria, 

VA 22312; or send an email to: 

PRA_Mailbox@sec.gov. Comments must 

be submitted to OMB within 30 days of 

this notice. 

February 15, 2007. 

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. E7–3098 Filed 2–22–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. IC–27701; File No. 812–13272] 

Wilshire Variable Insurance Trust, et 

al.; Notice of Application 

February 16, 2007. 

AGENCY: Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’). 

ACTION: Notice of application for an 

exemption pursuant to Section 6(c) of 

the Investment Company Act of 1940, as 

amended (the ‘‘1940 Act’’) from the 

provisions of Sections 9(a), 13(a), 15(a) 

and 15(b) of the Act and Rules 6e–

2(b)(15) and 6e–3(T)(b)(15) thereunder. 

APPLICANTS: Wilshire Variable 

Insurance Trust (the ‘‘Trust’’) and 

Wilshire Associates Incorporated 

(‘‘Wilshire’’ and together with the Trust, 

‘‘Applicants’’). 

SUMMARY OF APPLICATION: Applicants 

seek an order exempting them from the 

provisions of Sections 9(a), 13(a), 15(a) 

and 15(b) of the 1940 Act, and Rules 6e–

2(b)(15) and 6e–3(T)(b)(15) thereunder, 

to the extent necessary to permit shares 

of the Trust and shares of any other 

investment company or portfolio that is 

designed to fund insurance products 

and for which Wilshire or any of its 

affiliates may serve in the future as 

investment adviser, manager, principal 

underwriter, sponsor, or administrator 

(‘‘Future Trusts’’) (the Trust, together 

with Future Trusts, the ‘‘Trusts’’) to be 

sold to and held by: (a) Separate 

accounts funding variable annuity and 

variable life insurance contracts 

(collectively the ‘‘Variable Contracts’’) 

issued by both affiliated and unaffiliated 

life insurance companies; (b) trustees of 

qualified group pension and group 

retirement plans (‘‘Qualified Plans’’) 

outside of the separate account context; 

(c) separate accounts that are not 

registered as investment companies 

under the 1940 Act pursuant to 

exemptions from registration under 

Section 3(c) of the 1940 Act; (d) 

Wilshire and any affiliate of Wilshire 

that serves as an investment adviser, 

manager, principal underwriter, sponsor 

or administrator for the purpose of 

providing seed capital (collectively, 

‘‘Wilshire Entities’’); (e) any other 

insurance company general accounts 

permitted to hold shares of the Trusts 

pursuant to Treasury Regulation Section 

1.817–5 (‘‘General Accounts’’). 

FILING DATE: The application was filed 

on April 4, 2006 and amended on 

November 1, 2006. 

HEARING OR NOTIFICATION OF HEARING: 

An order granting the application will 

be issued unless the Commission orders 


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a hearing. Interested persons may 

request a hearing by writing to the 

Secretary of the Commission and 

serving Applicants with a copy of the 

request, personally or by mail. Hearing 

requests should be received by the 

Commission by 5:30 p.m. on March 14, 

2007, and should be accompanied by 

proof of service on Applicants in the 

form of an affidavit or, for lawyers, a 

certificate of service. Hearing requests 

should State the nature of the 

requester’s interest, the reason for the 

request, and the issues contested. 

Persons who wish to be notified of a 

hearing may request notification by 

writing to the Secretary of the 

Commission. 

ADDRESSES: Secretary, SEC, 100 F 

Street, NE., Washington, DC 20549–

1090. Applicants, Lawrence E. Davanzo, 

c/o Wilshire Associates Incorporated, 

1299 Ocean Avenue, Suite 700, Santa 

Monica, California 90401. 

FOR FURTHER INFORMATION CONTACT: 

Sally Samuel, Senior Counsel, or Joyce 

M. Pickholz, Branch Chief, Office of 

Insurance Products, Division of 

Investment Management, at (202) 551–

6795. 

SUPPLEMENTARY INFORMATION: The 

following is a summary of the 

application. The complete application 

may be obtained for a fee from the SEC’s 

Public Reference Branch, 100 F Street, 

NE., Washington, DC 20549 (tel. (202) 

551–8090). 

Applicants’ Representations 

1. The Trust is registered with the 

Commission as an open-end 

management investment company and 

is organized as a Delaware statutory 

trust. Wilshire, a California corporation, 

is registered with the Commission as an 

investment adviser under the 

Investment Advisers Act of 1940, as 

amended, and serves as the investment 

adviser to the Trust. The Trust currently 

consists of, and offers shares of 

beneficial interest (‘‘shares’’) 

representing interests in, fourteen 

separate investment portfolios (each, a 

‘‘Portfolio,’’ and collectively, the 

‘‘Portfolios’’). The Trust or any Future 

Trusts may offer one or more additional 

investment portfolios in the future (also 

referred to as ‘‘Portfolios’’). 

2. Shares of the Portfolios will be 

offered to separate accounts of affiliated 

and unaffiliated insurance companies 

(each, a ‘‘Participating Insurance 

Company’’) as investment vehicles to 

fund Variable Contracts. These separate 

accounts will be registered as 

investment companies under the 1940 

Act or will be exempt from such 

registration (individually, a ‘‘Separate 

Account’’ and collectively, the 

‘‘Separate Accounts’’). Shares of the 

Portfolios may also be offered to 

Qualified Plans, Wilshire Entities and 

General Accounts. 

3. The Participating Insurance 

Companies at the time of their 

investment in the Trusts either have 

established or will establish their own 

Separate Accounts and have designed or 

will design their own Variable 

Contracts. Each Participating Insurance 

Company has or will have the legal 

obligation of satisfying all applicable 

requirements under both State and 

Federal law. Each Participating 

Insurance Company, on behalf of its 

Separate Accounts, has entered or will 

enter into an agreement with the Trusts 

concerning such Participating Insurance 

Company’s participation in the 

Portfolios. The role of the Trusts under 

this agreement, insofar as the Federal 

securities laws are applicable, will 

consist of, among other things, offering 

shares of the Portfolios to the 

participating Separate Accounts and 

complying with any conditions that the 

Commission may impose upon granting 

the order requested herein. 

Applicants’ Legal Analysis 

1. In connection with the funding of 

scheduled premium variable life 

insurance contracts issued through a 

separate account registered as a unit 

investment trust (‘‘UIT’’) under the 1940 

Act, Rule 6e–2(b)(15) provides partial 

exemptions from Sections 9(a), 13(a), 

15(a) and 15(b) of the 1940 Act. Section 

9(a)(2) of the 1940 Act makes it 

unlawful for any company to serve as an 

investment adviser or principal 

underwriter of any UIT, if an affiliated 

person of that company is subject to a 

disqualification enumerated in Sections 

9(a)(1) or (2) of the 1940 Act. Sections 

13(a), 15(a) and 15(b) of the 1940 Act 

have been deemed by the Commission 

to require ‘‘pass-through’’ voting with 

respect to an underlying investment 

company’s shares. Rule 6e–2(b)(15) 

provides that these exemptions apply 

only where all of the assets of the UIT 

are shares of management investment 

companies ‘‘which offer their shares 

exclusively to variable life insurance 

separate accounts of the life insurer or 

of any affiliated life insurance 

company.’’ Therefore, the relief granted 

by Rule 6e–2(b)(15) is not available with 

respect to a scheduled premium life 

insurance separate account that owns 

shares of an underlying fund that also 

offers its shares to a variable annuity 

separate account or flexible premium 

variable life insurance separate account 

of the same company or any other 

affiliated insurance company. The use 

of a common management investment 

company as the underlying investment 

vehicle for both variable annuity and 

variable life insurance separate accounts 

of the same life insurance company or 

of any affiliated life insurance company 

is referred to herein as ‘‘mixed 

funding.’’

2. The relief granted by Rule 6e–

2(b)(15) also is not available with 

respect to a scheduled premium variable 

life insurance separate account that 

owns shares of an underlying fund that 

also offers its shares to separate 

accounts funding Variable Contracts of 

one or more unaffiliated life insurance 

companies. The use of a common 

management investment company as the 

underlying investment vehicle for 

variable annuity and/or variable life 

insurance separate accounts of 

unaffiliated life insurance companies is 

referred to herein as ‘‘shared funding.’’

3. The relief under Rule 6e–2(b)(15) is 

available only where shares are offered 

exclusively to variable life insurance 

separate accounts of a life insurer or any 

affiliated life insurance company, 

additional exemptive relief is necessary 

if the shares of the Portfolios are also to 

be sold to Qualified Plans or other 

eligible holders of shares, as described 

above. Applicants note that if shares of 

the Portfolios are sold only to Qualified 

Plans, exemptive relief under Rule 6e–

2 would not be necessary. The relief 

provided for under this section does not 

relate to Qualified Plans or to a 

registered investment company’s ability 

to sell its shares to Qualified Plans. The 

use of a common management 

investment company as the underlying 

investment vehicle for variable annuity 

and variable life separate accounts of 

affiliated and unaffiliated insurance 

companies, and for Qualified Plans, is 

referred to herein as ‘‘extended mixed 

and shared funding.’’

4. In connection with flexible 

premium variable life insurance 

contracts issued through a separate 

account registered under the 1940 Act 

as a UIT, Rule 6e–3(T)(b)(15) provides 

partial exemptions from Sections 9(a), 

13(a), 15(a) and 15(b) of the 1940 Act. 

The exemptions granted by Rule 6e–

3(T)(b)(15) are available only where all 

the assets of the separate account 

consist of the shares of one or more 

registered management investment 

companies that offer to sell their shares 

‘‘exclusively to separate accounts of the 

life insurer, or of any affiliated life 

insurance companies, offering either 

scheduled contracts or flexible 

contracts, or both; or which also offer 

their shares to variable annuity separate 

accounts of the life insurer or of an 

affiliated life insurance company or 


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which offer their shares to any such life 

insurance company in consideration 

solely for advances made by the life 

insurer in connection with the operation 

of the separate account.’’ Therefore, 

Rule 6e–3(T)(b)(15) permits mixed 

funding but does not permit shared 

funding. 

5. The relief under Rule 6e–3(T) is 

available only where shares are offered 

exclusively to variable life insurance 

separate accounts of a life insurer or any 

affiliated life insurance company, and 

additional exemptive relief is necessary 

if the shares of the Portfolios are also to 

be sold to Qualified Plans or other 

eligible holders of shares as described 

above. Applicants note that if shares of 

the Portfolios were sold only to 

Qualified Plans, exemptive relief under 

Rule 6e–3(T)(b)(15) would not be 

necessary. The relief provided for under 

this section does not relate to Qualified 

Plans or to a registered investment 

company’s ability to sell its shares to 

Qualified Plans. 

6. Applicants maintain, as discussed 

below, that there is no policy reason for 

the sale of the Portfolios’ shares to 

Qualified Plans, to Wilshire Entities, or 

General Accounts to result in a 

prohibition against, or otherwise limit, a 

Participating Insurance Company from 

relying on the relief provided by Rules 

6e–2(b)(15) and 6e–3(T)(b)(15). 

However, because the relief under Rules 

6e–2(b)(15) and 6e–3(T)(b)(15) is 

available only when shares are offered 

exclusively to separate accounts, 

additional exemptive relief may be 

necessary if the shares of the Portfolios 

are also to be sold to Qualified Plans, 

Wilshire Entities, or General Accounts. 

Applicants therefore request relief in 

order to have the Participating 

Insurance Companies enjoy the benefits 

of the relief granted in Rules 6e–2(b)(15) 

and 6e–3(T)(b)(15). Applicants note that 

if the Portfolios’ shares were to be sold 

only to Qualified Plans, Wilshire 

Entities, or General Accounts and/or 

separate accounts funding variable 

annuity contracts, exemptive relief 

under Rule 6e–2 and Rule 6e–3(T) 

would be unnecessary. The relief 

provided for under Rules 6e–2(b)(15) 

and 6e–3(T)(b)(15) does not relate to 

Qualified Plans, Wilshire Entities, or 

General Accounts, or to a registered 

investment company’s ability to sell its 

shares to such purchasers. 

7. Section 9(a)(3) of the 1940 Act 

provides that it is unlawful for any 

company to serve as investment adviser 

or principal underwriter of any 

registered open-end investment 

company if an affiliated person of that 

company is subject to a disqualification 

enumerated in Sections 9(a)(1) or (2). 

Rules 6e–2(b)(15)(i) and (ii) and Rules 

6e–3(T)(b)(15)(i) and (ii) under the 1940 

Act provide exemptions from Section 

9(a) under certain circumstances, 

subject to the limitations discussed 

above on mixed and shared funding. 

These exemptions limit the application 

of the eligibility restrictions to affiliated 

individuals or companies that directly 

participate in management of the 

underlying management company. 

8. The partial relief granted in Rules 

6e–2(b)(15) and 6e–3(T)(b)(15) under the 

1940 Act from the requirements of 

Section 9 of the 1940 Act recognizes 

that it is not necessary for the protection 

of investors or the purposes fairly 

intended by the policy and provisions of 

the 1940 Act to apply the provisions of 

Section 9(a) to individuals in a large 

insurance company complex, most of 

whom will have no involvement in 

matters pertaining to investment 

companies in that organization. The 

Participating Insurance Companies and 

Qualified Plans are not expected to play 

any role in the management of the 

Trusts. Those individuals who 

participate in the management of the 

Trusts will remain the same regardless 

of which Separate Accounts or 

Qualified Plans invest in the Trusts. 

Applying the monitoring requirements 

of Section 9(a) of the 1940 Act because 

of investment by separate accounts of 

other insurers or Qualified Plans would 

be unjustified and would not serve any 

regulatory purpose. 

9. Rules 6e–2(b)(15)(iii) and 6e–

3(T)(b)(15)(iii) under the 1940 Act 

provide exemptions from the passthrough voting requirement with respect 

to several significant matters, assuming 

the limitations on mixed and shared 

funding are observed. Rules 6e–

2(b)(15)(iii)(A) and 6e–

3(T)(b)(15)(iii)(A)(1) provide that the 

insurance company may disregard the 

voting instructions of its contract 

owners with respect to the investments 

of an underlying fund, or any contract 

between such a fund and its investment 

adviser, when required to do so by an 

insurance regulatory authority (subject 

to the provisions of paragraphs (b)(5)(i) 

and (b)(7)(ii)(A) of Rules 6e–2 and 6e–

3(T), respectively, under the 1940 Act). 

Rules 6e–2(b)(15)(iii)(B) and 6e–

3(T)(b)(15)(iii)(A)(2) provide that the 

insurance company may disregard the 

voting instructions of its contract 

owners if the contract owners initiate 

any change in an underlying fund’s 

investment policies, principal 

underwriter, or any investment adviser 

(provided that disregarding such voting 

instructions is reasonable and subject to 

the other provisions of paragraphs 

(b)(5)(ii), (b)(7)(ii)(B), and (b)(7)(ii)(C), 

respectively, of Rules 6e–2 and 6e–3(T) 

under the 1940 Act). 

10. Rule 6e–2 under the 1940 Act 

recognizes that a variable life insurance 

contract, as an insurance contract, has 

important elements unique to insurance 

contracts and is subject to extensive 

State regulation of insurance. In 

adopting Rule 6e–2(b)(15)(iii), the 

Commission expressly recognized that 

State insurance regulators have 

authority, pursuant to State insurance 

laws or regulations, to disapprove or 

require changes in investment policies, 

investment advisers, or principal 

underwriters. The Commission also 

expressly recognized that State 

insurance regulators have authority to 

require an insurer to draw from its 

general account to cover costs imposed 

upon the insurer by a change approved 

by contract owners over the insurer’s 

objection. The Commission, therefore, 

deemed such exemptions necessary to 

assure the life insurer’s solvency and 

performance of its contractual 

obligations by enabling an insurance 

regulatory authority or the life insurer to 

act when certain proposals reasonably 

could be expected to increase the risks 

undertaken by the life insurer. In this 

respect, flexible premium variable life 

insurance contracts are identical to 

scheduled premium variable life 

insurance contracts. Therefore, the 

corresponding provisions of Rule 6e–

3(T) under the 1940 Act undoubtedly 

were adopted in recognition of the same 

factors. 

11. The sale of Portfolio shares to 

Qualified Plans, Wilshire Entities, and 

General Accounts will not have any 

impact on the relief requested herein. 

With respect to the Qualified Plans, 

which are not registered as investment 

companies under the 1940 Act, there is 

no requirement to pass through voting 

rights to Qualified Plan participants. 

Indeed, to the contrary, applicable law 

expressly reserves voting rights 

associated with Qualified Plan assets to 

certain specified persons. Under Section 

403(a) of the Employee Retirement 

Income Security Act of 1974, as 

amended (‘‘ERISA’’), shares of a 

portfolio of a fund sold to a Qualified 

Plan must be held by the trustees of the 

Qualified Plan. Section 403(a) also 

provides that the trustee(s) must have 

exclusive authority and discretion to 

manage and control the Qualified Plan 

with two exceptions: (i) When the 

Qualified Plan expressly provides that 

the trustee(s) are subject to the direction 

of a named fiduciary who is not a 

trustee, in which case the trustees are 

subject to proper directions made in 

accordance with the terms of the 

Qualified Plan and not contrary to 


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ERISA, and (ii) when the authority to 

manage, acquire, or dispose of assets of 

the Qualified Plan is delegated to one or 

more investment managers pursuant to 

Section 402(c)(3) of ERISA. Unless one 

of the above two exceptions stated in 

Section 403(a) applies, Qualified Plan 

trustees have the exclusive authority 

and responsibility for voting proxies. 

12. Where a named fiduciary to a 

Qualified Plan appoints an investment 

manager, the investment manager has 

the responsibility to vote the shares held 

unless the right to vote such shares is 

reserved to the trustees or the named 

fiduciary. The Qualified Plans may have 

their trustee(s) or other fiduciaries 

exercise voting rights attributable to 

investment securities held by the 

Qualified Plans in their discretion. 

Some of the Qualified Plans, however, 

may provide for the trustee(s), an 

investment adviser (or advisers), or 

another named fiduciary to exercise 

voting rights in accordance with 

instructions from participants. 

Similarly, Wilshire Entities and General 

Accounts are not subject to any passthrough voting requirements. 

Accordingly, unlike the case with 

insurance company separate accounts, 

the issue of resolution of material 

irreconcilable conflicts with respect to 

voting is not present with Qualified 

Plans, Wilshire Entities, or General 

Accounts. 

13. Where a Qualified Plan does not 

provide participants with the right to 

give voting instructions, the trustee or 

named fiduciary has responsibility to 

vote the shares held by the Qualified 

Plan. In this circumstance, the trustee 

has a fiduciary duty to vote the shares 

in the best interest of the Qualified Plan 

participants. Accordingly, even if 

Wilshire or an affiliate of Wilshire were 

to serve in the capacity of trustee or 

named fiduciary with voting 

responsibilities, Wilshire or its affiliate 

would have a fiduciary duty to vote 

those shares in the best interest of the 

Qualified Plan participants. 

14. In addition, even if a Qualified 

Plan were to hold a controlling interest 

in a Portfolio, Applicants do not believe 

that such control would disadvantage 

other investors in such Portfolio to any 

greater extent than is the case when any 

institutional shareholder holds a 

majority of the voting securities of any 

open-end management investment 

company. In this regard, Applicants 

submit that investment in a Portfolio by 

a Qualified Plan will not create any of 

the voting complications occasioned by 

mixed funding or shared funding. 

Unlike mixed funding or shared 

funding, Qualified Plan investor voting 

rights cannot be frustrated by veto rights 

of insurers or State regulators. 

15. Where a Qualified Plan provides 

participants with the right to give voting 

instructions, Applicants see no reason 

to believe that participants in Qualified 

Plans generally or those in a particular 

Qualified Plan, either as a single group 

or in combination with participants in 

other Qualified Plans, would vote in a 

manner that would disadvantage 

Variable Contract holders. The purchase 

of shares of Portfolios by Qualified 

Plans that provide voting rights does not 

present any complications not otherwise 

occasioned by mixed or shared funding. 

16. Shared funding by unaffiliated 

insurance companies does not present 

any issues that do not already exist 

where a single insurance company is 

licensed to do business in several or all 

States. A particular State insurance 

regulatory body could require action 

that is inconsistent with the 

requirements of other States in which 

the insurance company offers its 

policies. The fact that different insurers 

may be domiciled in different States 

does not create a significantly different 

or enlarged problem. 

17. Shared funding by unaffiliated 

insurers, in this respect, is no different 

than the use of the same investment 

company as the funding vehicle for 

affiliated insurers, which Rules 6e–

2(b)(15) and 6e–3(T)(b)(15) under the 

1940 Act permit. Affiliated insurers may 

be domiciled in different States and be 

subject to differing State law 

requirements. Affiliation does not 

reduce the potential, if any exists, for 

differences in State regulatory 

requirements. In any event, the 

conditions set forth below are designed 

to safeguard against, and provide 

procedures for resolving, any adverse 

effects that differences among State 

regulatory requirements may produce. If 

a particular State insurance regulator’s 

decision conflicts with the majority of 

other State regulators, then the affected 

insurer will be required to withdraw its 

Separate Account’s investment in the 

affected Trust. This requirement will be 

provided for in agreements that will be 

entered into by Participating Insurance 

Companies with respect to their 

participation in the relevant Portfolio. 

18. Rules 6e–2(b)(15) and 6e–

3(T)(b)(15) under the 1940 Act give the 

insurance company the right to 

disregard the voting instructions of the 

contract owners in certain 

circumstances. Affiliation does not 

eliminate the potential, if any exists, for 

divergent judgments as to the 

advisability or legality of a change in 

investment policies, principal 

underwriter, or investment adviser 

initiated by contract owners. The 

potential for disagreement is limited by 

the requirements in Rules 6e–2 and 6e–

3(T) under the 1940 Act that the 

insurance company’s disregard of voting 

instructions be reasonable and based on 

specific good-faith determinations. 

19. A Participating Insurance 

Company’s disregard of voting 

instructions, nevertheless, could 

conflict with the majority of contract 

owners’ voting instructions. The 

Participating Insurance Company’s 

action possibly could be different than 

the determination of all or some of the 

other insurers (including affiliated 

insurers) that the voting instructions of 

contract owners should prevail, and 

either could preclude a majority vote 

approving the change or could represent 

a minority view. If the Participating 

Insurance Company’s judgment 

represents a minority position or would 

preclude a majority vote, then the 

Participating Insurance Company’s may 

be required, at the affected Trust’s 

election, to withdraw its Separate 

Account’s investment in such Portfolio. 

No charge or penalty will be imposed as 

a result of such withdrawal. This 

requirement will be provided for in the 

agreements entered into with respect to 

participation by the Participating 

Insurance Companies in each Portfolio. 

20. Each Portfolio will be managed to 

attempt to achieve the investment 

objective or objectives of such Portfolio, 

and not to favor or disfavor any 

particular Participating Insurance 

Company or type of insurance product. 

There is no reason to believe that 

different features of various types of 

contracts, including the ‘‘minimum 

death benefit’’ guarantee under certain 

variable life insurance contracts, will 

lead to different investment policies for 

different types of Variable Contracts. To 

the extent that the degree of risk may 

differ as between variable annuity 

contracts and variable life insurance 

policies, the different insurance charges 

imposed, in effect, adjust any such 

differences and equalize the insurers’

exposure in either case. 

21. Applicants do not believe that the 

sale of the shares of the Portfolios to 

Qualified Plans will increase the 

potential for material irreconcilable 

conflicts of interest between or among 

different types of investors. In 

particular, Applicants see very little 

potential for such conflicts beyond 

those which would otherwise exist 

between variable annuity and variable 

life insurance contract owners. 

Moreover, in considering the 

appropriateness of the requested relief, 

Applicants have analyzed the following 

issues to assure themselves that there 


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Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 8213 

were either no conflicts of interest or 

that there existed the ability by the 

affected parties to resolve the issues 

without harm to the contract owners in 

the Separate Accounts or to the 

participants under the Qualified Plans. 

22. Applicants considered whether 

there are any issues raised under the 

Internal Revnue Code of l986, as 

amended, (the ‘‘Code’’), the regulations 

issued by the Treasury Department (the 

‘‘Regulations’’), or the revenue rulings 

issued by the Internal Revenue Service 

(the ‘‘Revenue Rulings’’), if Qualified 

Plans, variable annuity separate 

accounts, and variable life insurance 

separate accounts all invest in the same 

underlying fund. Section 817(h) of the 

Code imposes certain diversification 

standards on the underlying assets of 

Variable Contracts held in an 

underlying mutual fund. The Code 

provides that a Variable Contract shall 

not be treated as an annuity contract or 

life insurance, as applicable, for any 

period (and any subsequent period) for 

which the investments are not, in 

accordance with regulations prescribed 

by the Treasury Department, adequately 

diversified. 

23. Regulations issued under Section 

817(h) provide that, in order to meet the 

statutory diversification requirements, 

all of the beneficial interests in the 

investment company must be held by 

the segregated asset accounts of one or 

more insurance companies. However, 

the Regulations contain certain 

exceptions to this requirement, one of 

which allows shares in an underlying 

mutual fund to be held by the trustees 

of a qualified pension or retirement plan 

without adversely affecting the ability of 

such shares also to be held by separate 

accounts of insurance companies in 

connection with their Variable 

Contracts. Thus, the Regulations 

specifically permit ‘‘qualified pension 

or retirement plans’’ and separate 

accounts to invest in the same 

underlying fund. For this reason, 

Applicants have concluded that neither 

the Code, nor Regulations, nor Revenue 

Rulings thereunder, present any 

inherent conflicts of interest if the 

Qualified Plans and Separate Accounts 

all invest in the same Portfolio. 

24. Applicants note that while there 

are differences in the manner in which 

distributions from Variable Contracts 

and Qualified Plans are taxed, these 

differences will have no impact on the 

Trusts. When distributions are to be 

made, and a Separate Account or 

Qualified Plan is unable to net purchase 

payments to make the distributions, the 

Separate Account and Qualified Plan 

will redeem shares of the relevant 

Portfolio at their respective net asset 

value in conformity with Rule 22c–1 

under the 1940 Act (without the 

imposition of any sales charge) to 

provide proceeds to meet distribution 

needs. A Participating Insurance 

Company then will make distributions 

in accordance with the terms of its 

Variable Contract, and a Qualified Plan 

then will make distributions in 

accordance with the terms of the 

Qualified Plan. 

25. In connection with any meeting of 

shareholders, the soliciting Trust will 

inform each shareholder, including each 

Separate Account, Qualified Plan, 

Wilshire Entities, and General Account, 

of information necessary for the 

meeting, including their respective 

share of ownership in the relevant 

Portfolio. Each Participating Insurance 

Company then will solicit voting 

instructions in accordance with Rules 

6e–2 and 6e–3(T), as applicable, and its 

agreement with the Trusts concerning 

participation in the relevant Portfolio. 

Shares of a Portfolio that are held by 

Wilshire Entities and any General 

Account will be voted in the same 

proportion as all Variable Contract 

owners having voting rights with 

respect to that Portfolio. However, 

Wilshire Entities and any General 

Account will vote their shares in such 

other manner as the Commission may 

require. Shares held by Qualified Plans 

will be voted in accordance with 

applicable law. The voting rights 

provided to Qualified Plans with respect 

to shares of a Portfolio would be no 

different from the voting rights that are 

provided to Qualified Plans with respect 

to shares of funds sold to the general 

public. Furthermore, if a material 

irreconcilable conflict arises because of 

a Qualified Plan’s decision to disregard 

Qualified Plan participant voting 

instructions, if applicable, and that 

decision represents a minority position 

or would preclude a majority vote, the 

Qualified Plan may be required, at the 

election of the affected Trust, to 

withdraw its investment in such 

Portfolio, and no charge or penalty will 

be imposed as a result of such 

withdrawal. 

26. Applicants reviewed whether a 

‘‘senior security,’’ as such term is 

defined under Section 18(g) of the 1940 

Act, is created with respect to any 

Variable Contract owner as opposed to 

a participant under a Qualified Plan, 

Wilshire Entities, or a General Account. 

Applicants concluded that the ability of 

the Trusts to sell shares of their 

Portfolios directly to Qualified Plans, 

Wilshire Entities, or a General Account 

does not create a senior security. 

‘‘Senior security’’ is defined under 

Section 18(g) of the 1940 Act to include 

‘‘any stock of a class having priority 

over any other class as to distribution of 

assets or payment of dividends.’’ As 

noted above, regardless of the rights and 

benefits of participants under Qualified 

Plans, or contract owners under 

Variable Contracts, the Qualified Plans, 

Wilshire Entities, General Accounts and 

the Separate Accounts only have rights 

with respect to their respective shares of 

the Portfolio. They only can redeem 

such shares at net asset value. No 

shareholder of a Portfolio has any 

preference over any other shareholder 

with respect to distribution of assets or 

payment of dividends. 

Applicants’ Conditions 

Applicants and the Wilshire Entities 

agree that the order granting the 

requested relief shall be subject to the 

following conditions which shall apply 

to the Trust as well as any Future Trust 

that relies on the order: 

1. A majority of the Board of Trustees 

(the ‘‘Board’’) of the Trust will consist 

of persons who are not ‘‘interested 

persons’’ of the Trust, as defined by 

Section 2(a)(19) of the 1940 Act, and the 

rules thereunder, and as modified by 

any applicable orders of the 

Commission, except that if this 

condition is not met by reason of the 

death, disqualification, or bona fide 

resignation of any trustee or trustees, 

then the operation of this condition will 

be suspended: (a) For a period of 90 

days if the vacancy or vacancies may be 

filled by the Board; (b) for a period of 

150 days if a vote of shareholders is 

required to fill the vacancy or vacancies; 

or (c) for such longer period as the 

Commission may prescribe by order 

upon application or by future rule. 

2. The Board will monitor the Trust 

for the existence of any material 

irreconcilable conflict between the 

interests of the contract owners of all 

Separate Accounts and participants of 

all Qualified Plans investing in such 

Trust, and determine what action, if 

any, should be taken in response to such 

conflicts. A material irreconcilable 

conflict may arise for a variety of 

reasons, including: (a) An action by any 

State insurance regulatory authority; (b) 

a change in applicable Federal or State 

insurance tax, or securities laws or 

regulations, or a public ruling, private 

letter ruling, no-action or interpretative 

letter, or any similar action by 

insurance, tax, or securities regulatory 

authorities; (c) an administrative or 

judicial decision in any relevant 

proceeding; (d) the manner in which the 

investments of such Trust are being 

managed; (e) a difference in voting 

instructions given by variable annuity 

contract owners, variable life insurance 


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8214 Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 

contract owners, and trustees of the 

Qualified Plans; (f) a decision by a 

Participating Insurance Company to 

disregard the voting instructions of 

contract owners; or (g) if applicable, a 

decision by a Qualified Plan to 

disregard the voting instructions of 

Qualified Plan participants. 

3. Participating Insurance Companies 

(on their own behalf, as well as by 

virtue of any investment of general 

account assets in a Portfolio), Wilshire 

Entities, and any Qualified Plan that 

executes a participation agreement upon 

becoming an owner of 10 percent or 

more of the assets of any Portfolio 

(collectively, ‘‘Participants’’) will report 

any potential or existing conflicts to the 

Board. Participants will be responsible 

for assisting the Board in carrying out 

the Board’s responsibilities under these 

conditions by providing the Board with 

all information reasonably necessary for 

the Board to consider any issues raised. 

This responsibility includes, but is not 

limited to, an obligation by each 

Participating Insurance Company to 

inform the Board whenever contract 

owner voting instructions are 

disregarded, and, if pass-through voting 

is applicable, an obligation by each 

Qualified Plan to inform the Board 

whenever it has determined to disregard 

Qualified Plan participant voting 

instructions. The responsibility to report 

such information and conflicts, and to 

assist the Board, will be a contractual 

obligation of all Participating Insurance 

Companies under their participation 

agreements with the Trust, and these 

responsibilities will be carried out with 

a view only to the interests of the 

contract owners. The responsibility to 

report such information and conflicts, 

and to assist the Board, also will be 

contractual obligations of all Qualified 

Plans with participation agreements, 

and such agreements will provide that 

these responsibilities will be carried out 

with a view only to the interests of 

Qualified Plan participants. 

4. If it is determined by a majority of 

the Board, or a majority of the 

disinterested trustees of the Board, that 

a material irreconcilable conflict exists, 

then the relevant Participant will, at its 

expense and to the extent reasonably 

practicable (as determined by a majority 

of the disinterested trustees), take 

whatever steps are necessary to remedy 

or eliminate the material irreconcilable 

conflict, up to and including: (a) 

Withdrawing the assets allocable to 

some or all of the Separate Accounts 

from the relevant Portfolio and 

reinvesting such assets in a different 

investment vehicle including another 

Portfolio, or in the case of Participating 

Insurance Company Participants 

submitting the question as to whether 

such segregation should be 

implemented to a vote of all affected 

contract owners and, as appropriate, 

segregating the assets of any appropriate 

group (i.e., annuity contract owners or 

life insurance contract owners of one or 

more Participating Insurance 

Companies) that votes in favor of such 

segregation, or offering to the affected 

contract owners the option of making 

such a change; (b) establishing a new 

registered management investment 

company or managed separate account; 

and (c) withdrawing the assets allocable 

to some or all of the Qualified Plans 

from the affected Portfolio or 

Participating Insurance Company and 

reinvesting those assets in a different 

investment medium. If a material 

irreconcilable conflict arises because of 

a decision by a Participating Insurance 

Company to disregard contract owner 

voting instructions, and that decision 

represents a minority position or would 

preclude a majority vote, then the 

insurer may be required, at the election 

of the Trust, to withdraw such insurer’s 

Separate Account’s investment in the 

Trust, and no charge or penalty will be 

imposed as a result of such withdrawal. 

If a material irreconcilable conflict 

arises because of a Qualified Plan’s 

decision to disregard Qualified Plan 

participant voting instructions, if 

applicable, and that decision represents 

a minority position or would preclude 

a majority vote, the Qualified Plan may 

be required, at the election of the Trust, 

to withdraw its investment in the Trust, 

and no charge or penalty will be 

imposed as a result of such withdrawal. 

The responsibility to take remedial 

action in the event of a Board 

determination of a material 

irreconcilable conflict and to bear the 

cost of such remedial action will be a 

contractual obligation of all Participants 

under their agreements governing 

participation in the Trust, and these 

responsibilities will be carried out with 

a view only to the interests of contract 

owners and Qualified Plan participants. 

For purposes of this Condition 4, a 

majority of the disinterested members of 

the Board will determine whether or not 

any proposed action adequately 

remedies any material irreconcilable 

conflict, but, in no event will the Trust 

or Wilshire, as relevant, be required to 

establish a new funding vehicle for any 

Variable Contract. No Participating 

Insurance Company will be required by 

this Condition 4 to establish a new 

funding vehicle for any Variable 

Contract if any offer to do so has been 

declined by vote of a majority of the 

contract owners materially and 

adversely affected by the material 

irreconcilable conflict. Further, no 

Qualified Plan will be required by this 

Condition 4 to establish a new funding 

vehicle for the Qualified Plan if: (a) A 

majority of the Qualified Plan 

participants materially and adversely 

affected by the irreconcilable material 

conflict vote to decline such offer, or (b) 

pursuant to documents governing the 

Qualified Plan, the Qualified Plan 

makes such decision without a 

Qualified Plan participant vote. 

5. The Board’s determination of the 

existence of a material irreconcilable 

conflict and its implications will be 

made known in writing promptly to all 

Participants. 

6. As to Variable Contracts issued by 

Separate Accounts registered under the 

1940 Act, Participating Insurance 

Companies will provide pass-through 

voting privileges to all Variable Contract 

owners as required by the 1940 Act as 

interpreted by the Commission. 

However, as to Variable Contracts 

issued by unregistered Separate 

Accounts, pass-through voting 

privileges will be extended to contract 

owners to the extent granted by the 

issuing insurance company. 

Accordingly, such Participants, where 

applicable, will vote shares of the 

applicable Portfolio held in their 

Separate Accounts in a manner 

consistent with voting instructions 

timely received from Variable Contract 

owners. Participating Insurance 

Companies will be responsible for 

assuring that each Separate Account 

investing in a Portfolio calculates voting 

privileges in a manner consistent with 

other Participants. 

The obligation to calculate voting 

privileges as provided in this 

Application will be a contractual 

obligation of all Participating Insurance 

Companies under their agreement with 

the Trusts governing participation in a 

Portfolio. Each Participating Insurance 

Company will vote shares for which it 

has not received timely voting 

instructions, as well as shares it owns 

through its General Account or 

otherwise attributed to it, in the same 

proportion as it votes those shares for 

which it has received voting 

instructions. Each Qualified Plan will 

vote as required by applicable law and 

governing Qualified Plan documents. 

7. As long as the 1940 Act requires 

pass-through voting privileges to be 

provided to variable contract owners, 

Wilshire Entities and any General 

Account will vote their respective 

shares of any Portfolio in the same 

proportion of all variable contract 

owners having voting rights with 

respect to that Portfolio; provided; 


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Federal Register / Vol. 72, No. 36 / Friday, February 23, 2007 / Notices 8215 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

however, that any Wilshire Entity or any 

insurance company General Account 

shall vote its shares in such other 

manner as may be required by the 

Commission or its staff. 

8. The Trust will comply with all 

provisions of the 1940 Act requiring 

voting by shareholders, which for these 

purposes, shall be the persons having a 

voting interest in the shares of the 

respective Portfolio, and, in particular, 

the Trust will either provide for annual 

meetings (except to the extent that the 

Commission may interpret Section 16 of 

the 1940 Act not to require such 

meetings) or comply with Section 16(c) 

of the 1940 Act (although the Trust is 

not one of the funds of the type 

described in the Section 16(c) of the 

1940 Act), as well as with Section 16(a) 

of the 1940 Act and, if and when 

applicable, Section 16(b) of the 1940 

Act. Further, the Trust will act in 

accordance with the Commission’s 

interpretation of the requirements of 

Section 16(a) with respect to periodic 

elections of trustees and with whatever 

rules the Commission may promulgate 

with respect thereto. 

9. The Trust will notify all 

Participants that Separate Account 

prospectus disclosure or Qualified Plan 

prospectuses or other Qualified Plan 

disclosure documents regarding 

potential risks of mixed and shared 

funding may be appropriate. The Trust 

will disclose in its prospectus that (a) 

Shares of the Trust may be offered to 

Separate Accounts of both variable 

annuity and variable life insurance 

contracts and, if applicable, to Qualified 

Plans; (b) due to differences in tax 

treatment and other considerations, the 

interests of various contract owners 

participating in the Trust and the 

interests of Qualified Plans investing in 

the Trust, if applicable, may conflict; 

and (c) the Trust’s Board will monitor 

events in order to identify the existence 

of any material irreconcilable conflicts 

and to determine what action, if any, 

should be taken in response to any such 

conflict. 

10. If and to the extent that Rule 6e–

2 and Rule 6e–3(T) under the 1940 Act 

are amended, or proposed Rule 6e–3 

under the 1940 Act is adopted, to 

provide exemptive relief from any 

provision of the 1940 Act, or the rules 

promulgated thereunder, with respect to 

mixed or shared funding, on terms and 

conditions materially different from any 

exemptions granted in the order 

requested in this Application, then the 

Trust and/or Participating Insurance 

Companies, as appropriate, shall take 

such steps as may be necessary to 

comply with Rules 6e–2 and 6e–3(T), or 

Rule 6e–3, as such rules are applicable. 

11. The Participants, at least annually, 

will submit to the Board such reports, 

materials, or data as a Board reasonably 

may request so that the trustees of the 

Board may fully carry out the 

obligations imposed upon the Board by 

the conditions contained in this 

application. Such reports, materials, and 

data will be submitted more frequently 

if deemed appropriate by the Board. The 

obligations of the Participants to 

provide these reports, materials, and 

data to the Board, when it so reasonably 

requests, will be a contractual obligation 

of all Participants under their 

agreements governing participation in 

the Portfolios. 

12. All reports of potential or existing 

conflicts received by the Board, and all 

Board action with regard to determining 

the existence of a conflict, notifying 

Participants of a conflict, and 

determining whether any proposed 

action adequately remedies a conflict, 

will be properly recorded in the minutes 

of the Board or other appropriate 

records, and such minutes or other 

records shall be made available to the 

Commission upon request. 

13. The Trust will not accept a 

purchase order from a Qualified Plan if 

such purchase would make the 

Qualified Plan shareholder an owner of 

10 percent or more of the assets of such 

Portfolio unless such Qualified Plan 

executes an agreement with the Trust 

governing participation in such 

Portfolio that includes the conditions 

set forth herein to the extent applicable. 

A Qualified Plan or Qualified Plan 

participant will execute an application 

containing an acknowledgment of this 

condition at the time of its initial 

purchase of shares of any Portfolio. 

14. A Portfolio will make its shares 

available under a Variable Contract and/ 

or Qualified Plan at or about the same 

time as it accepts any seed capital from 

any Wilshire Entity or any General 

Account of a Participating Insurance 

Company. 

Conclusions 

Applicants submit, based on the 

grounds summarized above, that the 

exemptions requested are necessary or 

appropriate in the public interest and 

consistent with the protection of 

investors and the purposes fairly 

intended by the policy and provisions of 

the 1940 Act. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–3068 Filed 2–22–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55308; File No. SR–CHX–

2006–38] 

Self-Regulatory Organizations; 

Chicago Stock Exchange, Inc.; Notice 

of Filing of a Proposed Rule Change 

To Extend the Late Trading Session 

and To Permit Only the Execution of 

Cross Orders During That Session 

February 15, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on December 

22, 2006, the Chicago Stock Exchange, 

Inc. (the ‘‘CHX’’ or the ‘‘Exchange’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the CHX. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

rules (i) To extend its late trading 

session until 4 p.m. and (ii) to provide 

that only cross orders may be executed 

during that session. The text of this 

proposed rule change is available on the 

Exchange’s Web site at http:// 

www.chx.com/rules/ 

proposed_rules.htm, at the Exchange’s 

principal office, and in the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

CHX included statements concerning 

the purpose of and basis for the 

proposed rule change and discussed any 

comments it received regarding the 

proposal. The text of these statements 

may be examined at the places specified 

in Item IV below. The CHX has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

In the Exchange’s new trading model, 

the Exchange conducts two trading 


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